Wholesale Market Opportunities

Marketing of Live Slaughter Animals

The responsibilities incurred by wholesale marketing differ depending on whether a farmer is marketing live animals or whole carcasses. Marketing live animals is straightforward, whereas marketing carcasses requires more responsibility on the part of the seller. Many farmers prefer to market live animals wholesale to dealers, packers, wholesalers, or retailers for a set price rather than risking uncertain prices at local or regional auctions. When selling livestock wholesale it is important to know

• Legal obligations
• What sort of information and duties will be expected
• Legal recourse in case of nonpayment, and
• How to locate buyers

The Players

In the Northeast United States, there are several businesses willing to buy small ruminants directly from producers. However, swine and beef farmers may find that the market for their livestock species is more consolidated with fewer middlemen competing for their products. Wholesale demand for live rabbits and poultry varies widely across the state.

Livestock dealers specialize in buying and reselling live animals. Livestock brokers serve the same role but do not take actual ownership of the animal. Instead, they charge a consignment fee to arrange sale of the animals to prospective buyers. Some brokers and dealers arrange the processing of purchased livestock at a USDA slaughterhouse and resell the animals as carcasses rather than live. Many producer cooperatives essentially act as specialized brokers and charge a commission to undertake the processing and sale of carcasses from livestock. These commissions are expected to pay the operating costs of the cooperative. Dealers often pick up straight from the farm while cooperatives may expect farmers to deliver animals to the slaughterhouse they patronize.

In contrast, packers resell only carcasses or retail cuts. They are businesses that own their own processing plant and buy animals from producers, dealers, and auctions to slaughter and process and resell to wholesalers and retailers. Wholesale businesses usually order live animals or carcasses through a packer, dealer, or broker. They often have particular slaughterhouses they butcher through and generally retail all parts of the carcasses through a variety of retailers, restaurants, etc. Retailers sell directly to the end consumer. Many retailers are interested only in specific cuts or do not have the time or contacts to arrange for trucking and slaughtering of animals. Others, however, specialize in hothouse carcasses and prefer to purchase live animals directly from the farm.

The Concern: Sufficient Supply

One of the biggest constraints in dealing with any of these markets is having a sufficient quantity of animals to interest them in coming to the farm to purchase animals, as opposed to shipping the animals to an auction barn. Packers, wholesalers, and retailers needing a steady supply of animals year round normally depend on dealers or order buyers at auctions to meet their regular demand. However, large farms will often find dealers who are willing to deal directly with them.

These same dealers may be interested in dealing directly with smaller farms if farms can pool their animals and assign a market coordinator to insure that all animals available for pick-up at a centralized point meet the market’s criteria. At certain times of the year when seasonal demand peaks, even wholesalers and retailers may seek live animals direct from farmers. One example of this is the demand for sucking kids and lambs for Easter holidays. During Easter and Christmas, several dealers, wholesalers, and even retailers seek livestock directly from farms with sufficient quantity and quality.

A Farmer’s Legal Obligations

There are a few legal regulations that farmers must follow when selling livestock wholesale. Amenable livestock need to be identifiable by a unique number, which will allow each animal to be traced back to the farm of origin where the year of birth can be confirmed. In the case of lambs and goats, this number is their official scrapie identification ear tag or tattoo, if over 18 months. Technically sheep and goats under 18 months that are going direct from the farm to a slaughterhouse for processing do not need scrapie identification, but they will still need an ID. Tattoos may be used instead of ear tags for some species. Other species may be required to have dual tags. Currently identification is requested for all livestock entering the human food chain.

Farmers may also need to obtain a premise identification code from USDA.

A Wholesalers License (Article 20 – Farm Products Dealer License) is required if annual purchases of livestock, meats, poultry from other New York producers raised by them and sold wholesale exceeds $10,000. If livestock is purchased at posted livestock auction markets (regulated by P&S) and/or product is sold wholesale interstate (constitutes a flow in commerce), the producer is subject to USDA-Packers & Stockyards (P&S) as to their payment and any unfair trade practice requirements. There are no filing and bonding requirements unless annual purchase volume exceeds $500,000. A wholesaler’s license (Article 20-Farm Products Dealer License) is not required of a producer selling his/her own product.

If a farmer buys animals from another farmer to meet their market obligations, they may need to obtain a Domestic Animal Health Permit from the NYSDAM Division of Animal Industry. This is critical if the animals will be in the care of a farmer for any length of time or loaded on a farmer’s transport vehicle or trailer, even if for a limited time. This permit requires that records be kept on the individual animals so that they can be traced back to the original owner if necessary.

Anyone transporting livestock is reminded to stay within the weight restrictions for the vehicle to avoid traffic violations. Farm vehicles may need to be identified by the New York State Department of Transportation if specific conditions are met. Transporters are encouraged to contact the DOT for more information.

Information and Responsibilities

When selling livestock wholesale, it is imperative to accurately describe the animals offered for sale. This means knowing exactly how many animals are available for sale, their weights and quality. A scale will allow a farmer to give buyers good estimates of animal weights when talking with prospective buyers. Weight tapes usually provide sufficient approximations for large ruminants but are less reliable with small ruminants. Most dealers will use their own scales to weigh animals during the actual transaction so farms scales do not need to be certified.

If the buyer does not have a certified scale, technically they cannot buy the animal based on a price per pound of live body weight. However, one option in this situation is to use the uncertified scale to estimate body weight and calculate price over the entire group being sold and then to divide the total sum by the number of animals being sold. This will result in a receipt based on a per head price that is similar to payment by weight. A farmer who has his own scales is able to verify that the dealer’s scale is reliable.

Farmers will also need to know the current market price for animals of similar type and quality. Farmers should be clear on why they need a particular price for their animals. Try not to attack a buyer personally when bickering over price. It is hard to come back to the same buyer if he has been accused of cheating. Instead, farmers should focus on their animals, the expense, and time they have put into them, and their need to receive a certain price in order to remain in business. Point out that financial sustainability is mutually important. If price cannot be agreed upon, the conversation should be ended on a friendly note. Remember, the wholesaler is dealing with a clientele they know well and if that clientele will not pay a sufficient price to satisfy everyone’s financial needs, then it is best not to push.

If the buyer does not seem particularly interested in the livestock, then a farmer might ask them if they can recommend another buyer. Producers can also ask what time of year their demand is biggest and what sort of livestock they desire at that time. Following up a phone call with a business card that includes a snapshot of the typical slaughter animals offered by a farm for sale is often helpful.

One question that will arise is whether to be paid on a live animal or dressed carcass basis. An advantage of being paid on a live animal price is that animals can be weighed on farm or upon delivery and the farmer paid right then by cash or check. If a farmer arranges to be paid by either dressing percentage or by the weight of the animals when walked over the scale at the processing plant, then they are taking a larger financial risk – particularly if they have no control over how the animals are handled on their way to the plant and how much shrinkage takes place in the interim. In the worst-case scenario, slaughter may be delayed several days or animals may lose their identification and the wrong animals identified. Another disadvantage to being paid by dressed carcass weight is that the buyer may decide that they are buying carcasses rather than live animals. If so, it is a farmer’s responsibility that those carcasses fall within the buyer’s parameters, otherwise there may be severe price penalties if the carcasses are too large or small. It is a good idea to record on-farm weights to cross-reference with the weights that are later reported by the buyer.

When a buyer comes to the farm or a centralized pickup point and views the animals live, then they usually pay a live weight price based on the animals live appearance and weight and the farmer’s obligations end there. The buyer may request that the farmer sign an official paper indicating that they have adhered to the proper drug withdrawal periods for any medications or wormers administered to the animal. If the animal is sold as Halal or pasture raised, the buyer may require that the farmer sign an affidavit stating that the animal was managed accordingly.

If a buyer is picking up the animals directly from the farm, keep in mind that 1) he or she is taking on the transport expenses, and 2) on-farm weights will not reflect any transport shrinkage (live weight losses during transport). If the payment is based on on-farm weight, these two factors are advantageous to the farmer. Prior to selling, make sure there is a clear understanding on when the animals are being picked up and how long the farm is willing to hold on to them. If the reliability of the buyer is questionable, then the farmer should request that the animals be picked up prior to the last good auction dates in their area. For example, if Easter lambs are being shipped, then the farmer might propose a pick-up date that is before the last Easter auction in his/her region.

Legal Recourse in Case of Nonpayment

Unless the buyer is paying cash during the transaction, it is very important that a paper trail be established. All farmers should know and understand the Packers & Stockyards Act. Check with the regional P & S representative or the appropriate state’s Department of Agriculture to see whether the buyer is bonded or licensed with an official agency.

By law, all packers that purchase $500,000 worth of livestock annually are required to be bonded. The bonds usually amount to the value of livestock purchases they make in two average working days, with a minimum bond of $10,000 being required. Before actually selling to a packer, farmers are encouraged to check out the financial status of their buyer with the regional Packers and Stockyards agent. Is the packer’s bond in good standing or has it been revoked by the bonding company? Are they currently being investigated for failure to pay a producer? Are there any citations out on them? Is the agent aware of any alleged complaints against them? Agents help investigate charges of no payment against all packers. Therefore, agents can often advise about the complaint status of smaller, unbonded packers.

In order to qualify for P & S protection, do not extend credit, do not use threats or intimidation to negotiate price, but do get an invoice or other proof that the animals were delivered. The invoice should include seller’s and buyer’s names, number or pounds of animals delivered, and sale price per unit. It is good to have the buyer sign it. However, a buyer signature is not required for P & S to file a complaint. If there is no buyer’s signature on the invoice, then try to have the trucker or someone working at the slaughter plant where the animals were dropped off, sign the invoice stating that the animals were received. If there is no one there when the animals were delivered, then farmers need to be sure to note on the invoice the time, date and place of delivery. Farmers need be sure to cover themselves in case a buyer tries to claim that they never received the animals. Although, P & S can file a complaint on a farmers’ behalf, there is little chance of getting payment if the packer already owes their bond to several other farmers or has declared bankruptcy.

About the only way to establish the financial reliability of smaller wholesalers or retailers is to pay for a private credit check on them. These credit checks are often available via the web. Farmers can also check with other producers who have sold to them or auctions and county agricultural educators who may work with them on a regular basis.

Locating Buyers

Sellers of small ruminants in the New York State area, might want to check out the Small Ruminant Marketing Directory, available on the web at http://www.sheepgoatmarketing.info This resource also lists slaughterhouses, live animal markets, auctions, packers, livestock dealers, etc.

One way to locate packers is to contact the regional Packers and Stockyards office (the office for the Eastern US can be reached by phone at (404)562-5840). Ask them for help contacting a local resident agent. As of January 2010, the supervisor for the Northeastern US was Cindy Bertoli at 315-720-2668. Resident agents may be able to provide farmers with a list of bonded Packers in their region. Farmers can then contact these packers to see what sort of animals they purchase.

Another way to locate middlemen is to contact local USDA and custom slaughterhouses. There is a USDA FSIS Directory of USDA processing plants on the web at http://www.fsis.usda.gov/Regulations_%26_Policies/Meat_Poultry_Egg_Inspection_Directory/index.asp . However, the disadvantage of this directory is that it does not sort processing plants by state. The district office for USDA FSI can sometimes provide a list of federally and state inspected plants. District offices can be located by phoning the main office at (202)720-9904 or on the web at http://www.fsis.usda.gov/Contact_Us/Office_Locations_&_Phone_Numbers/index.asp. Sellers can then call individual slaughterhouses and ask them if they slaughter livestock for any wholesalers, retailers, or dealers who buy direct from farmers and whether they would be willing to help contact these buyers. Several slaughterhouses operate as packers and buy livestock direct from farmers for the businesses they serve.

Wholesalers of small ruminants such as goats and lambs might be found by stopping at restaurants that serve goat or lamb and asking whom they purchase their carcasses from. Cornell Cooperative Extension livestock can also provide advice about packers or dealers who buy in a particular region.

Retailers can generally be located by looking under meat market listings in the web or telephone yellow pages for large metropolitan areas. Many large cities have restaurant directories on the web, which can be searched using key words such as “veal” or “goat meat”.

There are also some live animal markets in areas such as NYC that sell live sheep, goats, deer, rabbits, and poultry direct to consumers. These markets are not to be confused with auction houses. Rather, these are retail businesses where direct consumers can go and view penned animals, make their pick, and have the animal slaughtered at an on-site custom slaughterhouse. Because they take ownership of the animal prior to slaughter, the animal does not have to be slaughtered in a USDA federally inspected plant. Instead, the animals are slaughtered under the “custom exemption” in the federal code, which provides that the owner of an animal does not have to have the carcass federally inspected if the meat is going directly back to the owner’s household for consumption. The meat is stamped “not for resale” and then bagged for the customer to take home. Live animal markets usually buy from dealers or order buyers at regional auctions. However, sometimes they buy direct from producers. Some goat and sheep farms have built on-farm custom slaughterhouses and become rural versions of live animal markets. These farms often purchase livestock direct from other farmers.

Marketing Carcasses Wholesale

Farmers can opt to sell carcasses directly to wholesale and retail businesses. By doing so, they will receive a higher price, but take on much more responsibility. Farmers marketing wholesale will need to make all slaughter, processing, and transport arrangements and pay these expenses up front. The price negotiated must consider these additional expenses.

Farmers will also need to accurately predict the carcass yield of their live animals. These buyers will be requesting specific sized carcasses and can legally penalized or reject carcasses if they do not fall within the agreed upon weight range. Be sure that there is clear agreement on the penalty for carcasses outside the specified weight range. It may be beneficial to have a disinterested third party available to witness the carcass weights.

A seller will have to accurately predict the dressing percentage of the animals. Make sure that the buyer’s definition of a dressed or hanging carcass is fully understood. Does it include the hide, head, and/or organs? Is it the weight of the carcass immediately after slaughter (hot carcass weight) or of the cold carcass upon delivery to the retail store after chilling in a cooler for a few days? If the later, then cooler shrinkage must be planned for.

Success in this market will depend on the availability and affordability of a USDA federally inspected slaughter facility to work with and an economical, legal, and reliable way to get the meat to the buyer. Sellers will need to judge how trustworthy their buyer is, as even under good conditions there will be a time lapse between delivery and payment.

Some slaughterhouses have refrigerated trucks that regularly deliver carcasses to metropolitan areas. In this case, a farmer may be able to pay an extra fee to have them deliver carcasses. If the delivery business operates as a packer, then they may be interested in purchasing the carcasses directly.

It is important to learn if the buyer wants carcasses hung or stacked for transport. Do swine and beef always have to be hung? How high can they be safely stacked? Are the carcasses to be shrouded or packaged? If so, who will pay the slaughterhouse for these extra services?

If selling to the buyer on a year round basis is there any chance of negotiating a yearly contract with them? Again, as with live slaughter animals, Packers & Stockyards is the main recourse in the event of nonpayment.